 "CRISIL downgrades ratings for Allahabad Bank's capital bonds")
CRISIL has revised its ratings on Allahabad Bank’s Tier-II bonds on prospects of further deterioration in asset quality and pressure on the lender’s bottom line.
It revised its ratings from ‘AA+’ to ‘AA’. CRISIL has assigned ‘A’ rating to the bank’s Rs 1,000-crore Tier-I bond issue.
The bank’s asset quality would remain under pressure over the next few quarters because of the asset quality review exercise, the rating agency said, adding this would result in increased pressure on the bank’s already weak profitability. The ratings action reflects the higher-than-expected deterioration in Allahabad Bank’s asset quality and profitability during the first nine months of 2015-16.
Gross non-performing assets (NPAs) rose to 6.4 per cent of the total in December 2015, from 5.5 per cent in March 31, 2015. The rise in gross NPAs was primarily due to slippage of relatively large exposures in the large corporate and mid-corporate segments. The lender posted net loss of Rs 160 crore for April-December 2015.
The ratings, nevertheless, continue to factor in the belief that Allahabad Bank would continue to receive support from its majority owner, the government of India, CRISIL said. This support was assumed both on an ongoing basis and in the event of distress.
Allahabad Bank's asset quality, profitability, and capital coverage for unprovided weak assets would remain under significant pressure. This was due to the expectation of continued increase in the bank’s gross NPAs over the next few quarters.
The lender’s liability to set aside money for bad loans may go up and this might result in significant losses over the next few quarters, as seen in the third quarter ended December 2015, CRISIL said.
